Panera Bread 2009 Annual Report Download - page 2

Dear Stockholder, April 12, 2010
2009
2009 can be described as the year in which many restaurant companies were focused on surviving the
economic meltdown. For Panera, 2009 was different as we chose to stay the course and continue to execute our
long-term strategy of investing in our business to benefit the customer.
This contrarian approach took form in our multi-planked plan to grow store profit, drive operating leverage and
use our capital smartly, all while investing in our business to build competitive advantage and capture market share.
The result: Panera zigged while others zagged.
The proof is in the results. We’re proud to have met or exceeded our earnings targets in each quarter of 2009.
We delivered 25% EPS growth in 2009 on top of 24% EPS growth in 2008. Our stock price has increased 115% over
the last two years (December 31, 2007 to March 30, 2010). Additionally, average weekly sales (AWS) for
Company-owned bakery-cafes in the “class of 2009” reached a 6-year high for new units which, coupled with lower
occupancy and development costs in 2009, means that the “class of 2009” has the potential to be one of the highest
return on investment (ROI) classes in our history. On top of that, our comparable bakery-cafe sales have been
tracking north of 9% over the last four month period. This metric, more than any other, is the best proxy we have to
understand the underlying trends in store profit growth per bakery-cafe and speaks directly to the strength of our
concept and our strategy. Indeed, Team Panera exceeded virtually all of the targets we set for ourselves in 2009.
So what got us here? How did we achieve these results? Simply put, we bet on the right initiatives and our
initiatives delivered. We moved the needle in areas that mattered and in ways that mattered to our guests.
First, we built competitive advantage in 2009 by strengthening value — “the Panera way.” As you know, Panera
defines value differently than many other companies. While many other companies discounted to lure customers back
throughout 2009, Panera was focused on offering guests an even better “total experience.” That is value the Panera
way. It is because of that headset that you saw us expand our breakfast line with new coffee, a new Strawberry Granola
Parfait and a new breakfast sandwich category. It is because of that headset that you saw us expand our salad line with
new lettuce, new China and a new line of chopped salads. And it is because of that headset that you saw us innovate
across our menu with items like Mac & Cheese, a new line of smoothies and a reformulated baguette.
Second, we delivered in 2009 because we utilized our scale to execute a more aggressive marketing strategy.
This initiative goes back half a decade when we realized that marketing is one of the key tools we have to use our
size and scale to build even greater customer benefit, differentiation and, ultimately, market share. To do so, we
focused not simply on building name recognition, but rather on using marketing to build deeper relationships and
quality awareness with our target customers.
Third, our focus on executing strong Category Management initiatives paid real dividends in 2009. The team
continued to focus on improving store profit by driving gross profit per transaction through sales of higher gross
profit items. We introduced new items, like the BBQ Chopped Chicken Salad and the Napa Almond Chicken Salad
Sandwich, which delivered higher gross profit dollars per transaction than many existing products on our menu. As
well, our initiative to drive add-on sales through Bread Heritage and our new Retail Merchandising/Impulse
function helped drive gross profit per transaction.
Fourth, crucial to Panera’s success in 2009 was the contrarian approach we took to operations during the
recession. Over the past year, many restaurant companies told investors they were able to improve labor productivity
while running negative comparable store sales. Frankly, I don’t know how you do that unless you’re reducing labor
hours more than sales fall off. And it is our belief that ripping labor out of a restaurant implicitly taxes the customer by
creating longer waits, slower service and more frazzled team members. Instead, we took the approach of maintaining
labor consistent with sales and continuing to invest in our people as a way to better deliver for the guest.
And finally, in 2009, we focused on what we believe to be the highest and best use of our cash: building high
ROI new Panera bakery-cafes. As I mentioned earlier, 2009 was a good year for high ROI development at Panera
and the class of 2009 Company-owned bakery-cafes is expected to go down as one of the highest ROI classes in our
history. Why? Our development team executed a disciplined development process that took advantage of the
recession to drive down input costs while selecting locations that delivered strong sales volumes.